The primary difference between equity and stock is that equity is a much broader concept. Equity generally means ownership value in an asset or business, whereas stocks are a specific form of ownership in a corporation.
Equity is the value of your ownership or assets in a personal or business investment. Common examples include:
- Business ownership - In business, equity is the value of one or more person's ownership stake. One of the most basic accounting equations is assets equal owners' equity plus liabilities. In this equation, equity is also known as the net worth of the company to its owners.
- Real estate investment - When you own a building or property for personal or business use, you may have equity in that property. In a house, for instance, your equity is the difference between the current market value on the home and what you owe on your mortgage. On a home worth $180,000, remaining debt of $150,000 means your equity is $30,000. In this scenario, equity also represents what you would receive on the sale of the property.
- Stocks and investments - Stocks and other types of investment products also are known as equities, because they are assets you hold that you can sell for cash.
- In the basic accounting equation, "equity" is sometimes used to describe the combined value of owners' equity and liabilities, which equals the value of total assets.
Company stock is one form of business equity. A corporation has an ownership structure where multiple shareholders own fractional stock in the business. With a publicly-traded company, people exchange shares of stock on a daily basis.
For company operators, selling shares of stock is one method of raising equity capital to run the business. In contrast to debt, equity capital doesn't require repayment. Therefore, it doesn't restrict company cash flow going forward.
For investors, buying stock is a way to earn money in business without taking an active role in operations. Because many investors own shares of stock in a public company, the total owners' equity in a public company is the value of all shares combined.